NAMA will pay €54bn for €77bn of loans. The property which these loans are secured on has a current market value of €47bn. NAMA is paying an extra €7bn based on the “long-term economic value” of this property.

This €77 billion, estimated by the banks, is made up of approximately €49 billion land and development and approximately €28 billion associated loans.

The loans identified for potential transfer consist of almost 2,000 customers with around 21,500 loans.

Around €9 billion of the €77 billion is interest roll-up, or interest payments postponed.

66% of the loans are in the Republic, 21% in Britain, 6% in Northern Ireland, 3% in the US and 4% in Europe.

The NAMA figures are based on estimates that Irish property prices have fallen by an average of 50% since the loans concerned were given.

Property prices will have to increase by 10% over the next ten years for NAMA to make a profit.

That’s the main information so far. No detail was given yesterday by Brian Lenihan on how much money the five banks will need in the next few months after its loans are put into NAMA.

The banks will need to be recapitalised once their loans are transferred. If the government has to invest more money into the banks, they will be taking ordinary shares and therefore it could end up owning a majority stake in either AIB or Bank of Ireland i.e. a part nationalisation.

The banks may decide to raise money instead by doing a rights issue, attract outside investors or sell off some assets e.g., AIB may sell its shares in M&T Bank in the US.

Based on the share price increases in both AIB and Bank of Ireland today, it looks like investors are happy with NAMA.

NAMA or the National Asset Management Agency is the government’s solution to the banking crisis in Ireland. NAMA will be a “bad bank” where all the Irish banks can dump their bad loans. Think of NAMA as a skip for all the bad lending by the banks during the Celtic Tiger. These are primarily loans for property development and speculation.

On Wednesday the Minister for Finance, Brian Lenihan, will announce how much NAMA will pay the banks for their property loans. NAMA will be taking over about €90bn worth of property loans from the Irish banks. Not all of these loans are bad loans. Repayments are being made on some of them.

The big question is:

“How much should NAMA pay for these loans?”

From a bank’s point of view, a loan is an asset. However, due to falling property values these loans are no longer worth €90bn. Will the government pay 20% or 30% less? The dilemma is if the government pays too little for these loans, the banks will lose out and will not have enough capital and therefore the government will have to put more money into the banks and could end up owning the majority of the shares in AIB and Bank of Ireland. If it pays too much for these loans, the taxpayer will have to foot the bill.

The government will pay for the loans by issuing government bonds. Therefore, our National Debt will increase further. The banks can then use these bonds as collateral to borrow cash from the ECB. NAMA will then look after the loans it has taken over. It will act in the same way as if a bank was in charge. It will pursue the borrower for all loan interest and repayments and may lend more money to builders to complete developments.

It is hoped that if NAMA buys these loans at a good price, it may in fact make a profit over time if property values increase. The banks will then have all the non-performing loans off their books and with the additional funding from the ECB should be able to start lending to businesses again.

NAMA is going to be expensive and risky. However, it may work and is now the only option to get the banks lending again to Irish business and consumers.